Getting the Automation Recipe Right for the Mid-Market CFO Office

Lawrence Chester Lawrence Chester

Fractional CFO

CFO Simplified

Alex Jimenez Alex Jimenez

Managing Principal Consultant

Financial Services Consulting at EPAM

Available on

Synopsis:

In the session, you will gain insights from Lawrence Chester and Alex Jimenez on how organizations approach automation and the mistakes they should avoid. While companies are moving towards adopting automation and digitally transforming the office of the CFO, they need to take time and evaluate their goals.

Transcript:

Madhurima Gupta:
Hi! Welcome to the Mid-Market CFO Circle Live. I’m Madhurima Gupta, your host and I’d like to welcome all of you to the very-first CFO Circle Live. On Mid-Market CFO Circle Community, we bring to you peer insights on technology trends, predictions, and the potential cost of not implementing automation and emerging tech for digital transformation and overcoming pressing challenges at the office of the CFO. And for our session today, I have two experts, Lawrence Chester & Alex Jimenez with us. Lawrence has spent 25 years as a CFO for companies such as Colovos and High Sierra Sport where he drove the finance function to reduce losses, improve financial operations and reporting. Larry is the President of ‘CFO Simplified’ and has been working with Mid-market CEOs on Business Turnaround, Mergers, and Acquisitions, Financial and Operations Management along with his team.

Lawrence Chester:
It’s great to be with you.

Madhurima Gupta:
Next, I’d like to introduce – Alex Jiminez – He is a strategist, FinTech influencer, writer, and speaker. He is the Chief Strategy Officer at Finalytics.ai and Extractable. Alex has over 28 years of experience in banking, much of it in strategy. He is responsible for helping financial service companies define their digital transformation strategy and implementation roadmaps. Hey Alex! Welcome to the show.

Alex Jimenez:
Happy to be here.

Madhurima Gupta:
We will be discussing how mid-market organizations should plan digital transformation of their finance function, with a special focus on choosing the right kind of strategies that can feed your cash flow and enhance customer experience at the same point. Let’s start with you Larry to first decipher a challenge. In your experience, when do mid-market CFO offices begin planning collections?

Lawrence Chester:
I think most business owners, especially in the lower middle market are very concerned about what’s happening today and tomorrow. And don’t really look strategically at what they need to do down the road. So just as they come in and they deal with the operational problems that they’re facing on a day-to-day basis, they very much deal with the financial issues for their company on a day-to-day basis as well. So I don’t think they spend as much time managing their accounts receivable as they do worrying about their cash flow and ending up in a position where, oh my gosh, they don’t have enough money to cover payroll this Friday or to cover all the payables that they wanted to cover, or to be able to take care of new inventory they want to bring in. And they take a look at their accounts receivable and suddenly they realize that their accounts receivable is aging out over 30 days past invoice date or 40, 45, or even 60 days late. And that’s the time that they get on the phone or have people get on the phone and start to call to do collections. Um, it’s really trying to close the barn door after the horse is already gone. They’ve already missed the window of opportunity to collect that money on a timely basis. And now what they’re doing is chasing it.

Madhurima Gupta:
Often, the other issue is using a blanket and manual approach to collections which disrupt the customer experience and it impact cash flow as well. Would you agree with this?

Lawrence Chester:
That’s very true just as, uh, companies put together credit policies that are blankets of what they would like to see across the board rather than really tailoring a credit policy to the, uh, individual customers and the experience that they have when they do credit checks on, uh, on clients, when they first bring them on board. It’s the same thing they’re going to do with regard to credit policy, uh, from a collections perspective. They’re going to assume that everybody’s paying on a net 30 basis. If they’re giving them net 30 terms, they’re going to assume that everybody’s gonna pay on a net 30 basis. And so they don’t even pay any attention to it until they’re 15 to 30 days late. And the assumption is that everybody is going to pay on time. Everybody is gonna be honest and straightforward in dealing with those things and take care of the responsibilities that the individual business has. And I think in a normal economic environment where companies have plenty of cash in a rising economy, I think understanding or assuming that people are gonna pay their bills is, uh, pretty much commonplace, and I think you can plan on businesses paying on time. In the current economic environment, where there are a lot of companies that are really stretched to the, uh, stretched to the walls in terms of how much cash they have available, I think they’re gonna be very picky about the bills that they pay and, uh, that credit policy from the customer’s point of view of how fast they’re going to pay and how frequently they’re going to pay is gonna change on a day to day basis based on their individual cash flow.

Madhurima Gupta:
Yeah, that makes sense. So, Alex, we can agree that automation of sorts to keep an eye on unique customer behavior can help us. Now, when CFOs are exploring options and making decisions to transform their finance function – how important is it to pick the right solutions?

Alex Jimenez:
The problem is not picking the right solution, it’s understanding what problem you’re trying to address. And that’s the issue that we see in all the functions, uh, throughout an organization. But we see organizations saying, we want to pivot, we wanna change our business model, we wanna be a digital-enabled organization, but they don’t know why they’re doing it. Or if they know why they’re very, uh, vague about what it is they want to accomplish. They want to be modern. They want to uh they want to have cost savings. They want to be where their clients are. And that’s, as far as it goes. And generally what we see is organizations then go on trying to look for solutions, uh, and their solutions to some problems, but they’re not well defined.
So uh, I think the organizations need to take a step back and figure out what are the issues, what are the problems that they want to address before they start jumping onto a solution. And uh we’re looking at it backwards. We’re looking at uh, we’re all excited about the technology. Uh, we have vendors coming to us and showing us technology that does all, all sorts of great things, but are they addressing the issues we have or not? And that, that to me is the biggest, uh, disconnect, uh, and why a lot of digital transformations programs don’t achieve what they set out to do.

Madhurima Gupta:
That’s right. As you mentioned how most companies are looking at it backward, we also see that CFO offices often uh choose a solution without mapping the current process to identify actual process needs. I mean this can definitely complicate the expected results. Can you maybe throw some light on that?

Alex Jimenez:
And what issues your team is having, then just buying another set uh,uh another solution that you’re going to implement, uh, without a thoughtful plan, uh, then it’s, it’s a recipe for disaster. So really you need to understand the process, you don’t you, and really, you need to understand the outcome that you’re going after, your outcome is well defined. Then you could just ignore the process and put a new solution because the solution will bring, you, give you a new process, but the outcome has to be well defined. And not just to say, this is, you know, we want cost savings X, Y, Z, but why do you want the cost savings? uh, what it is, what is it that you want to beyond that? What are the actual true goals? Uh, and what the targets are, the timing, what metrics you have, what, uh, KPIs you have all of that you need to define well before you start looking for solutions.

Madhurima Gupta:
Dialing back to discuss the challenge we picked, Larry. Uh when it comes to collections, what is the impact on the AR process when CFOs use a backward and blanket approach to automation?

Lawrence Chester:
That’s an interesting problem. One of the things you’re facing is that dealing with situations on a blanket process are always difficult. Uh, any setup that you do on any ERP system or any, uh, ancillary software has to be customized and dealt with on an individual basis. It’s fix it once, and then you don’t need to worry about it going forward. Um, and I think if you’re using an automated solution, being in a position where you use that same blanket answer for every client is going to create the same problem as you had when you’re doing it on a manual basis. I think the issue is gathering data and then acting on that data so that it, uh, accurately reflects what’s happening in the marketplace or in your marketplace for your individual clients. So making sure that you understand what the payment history is for each individual customer, so that you can then tailor your follow-up, uh, for those individual customers based on what your experience has been with them. You know, I, I know from my experience that there are clients that pay on a regular basis, uh, even if they have bad credit, uh, because you are the one company that they’re keeping cleans, that they can use you as a credit reference. Well, the same thing’s true across the board. You are going to have a different experience with every single client that may be different than the experience that other people have with them. And so you really need to judge how you are relating to that customer based on your individual experience with them.

Madhurima Gupta:
That’s true, I couldn’t agree more. Uh, let’s talk more about human biases. Um, these make you overlook some customers’ payment patterns maybe because we think that this is just a one-off case um and you know, and in the end, it impacts your cash flow. What role can automation play to overcome these human biases?

Lawrence Chester:
The situation is that if you have, uh, you know, five customers, it’s very easy to manage them. If you’ve got 500 customers, it’s much harder to manage them on an individual, uh, basis. So I think certainly if there was an automation tool that allowed you to set rules and policies and practices and have the, uh, software identify when things are happening out of the norm so that you can react to it. I think that’s key. Uh, and I think that’s the key for any financial, uh, operating system or any way of managing a business. Uh, the most efficient way of doing it is management by exception. You, you don’t need to look at the things that are working properly on a day-to-day basis. I mean, why spend your time worrying about an order or for an individual customer that’s always been operating according to the norm, what you wanna do is pay attention to the things that are operating outside the norm.
Uh, and whether that be in manufacturing or in inventory control, or dealing with sales or dealing with customer collections, if it’s operating outside the norm, then it needs to be addressed. And so the question is, how do you determine whether it’s outside the norm and how quickly do you respond to it? And that’s very difficult to do on a manual basis in any operation. And that’s why companies put together dashboards to be able to do that. And I would certainly think that piece of software that managed accounts receivable and created a dashboard like that would certainly be an advantage for any business that was using it.

Madhurima Gupta:
Interesting.! Alex, um you know coming to you, while Mid-Market Companies are digitally transforming their finance function while addressing the challenges like the ones that Larry mentioned – the process becomes complicated at times. So why is it important for CFO Offices to evaluate their strategy and end goal at every step of the way with the vendor? How does this help ease the transformation?

Alex Jimenez:
Absolutely. And, and not just, uh, at every step at every function. So while, while a CFO may be focused on the, on the,uh, finance area, you also gotta make sure that whatever it is that you are trying to implement and improve, it’s not going to result in issues elsewhere. Uh, so, so digital transformation is not a project that you take on for a specific function. It should be something that you take on for the full organization. And it should start with looking at the strategy, you of the organization in general, start looking at what the business model is going to be for the organization, and then define what are the different changes that need to be made in all the functions. It should, uh not just be in the vacuum of saying the CFO is saying, okay, I need to, to transform my function while everybody else hasn’t transformed theirs, just as, you know, a CMO should be saying the same thing in the marketing team or, or a COO, or, you know, it should be the whole organization working tandem to move towards a digitally enabled, uh, future. And a lot, lot of what we talk, we we’re talking about has to do with data and has to do with how we use data.
And if we don’t tackle data at the macro level, and to understand where we’re going, we’re not gonna be able to, to define solutions that are gonna help us at the micro level for a specific function. So if you’re, if you’re, you don’t transform your GL period, you gotta transform all the feeds that go into your GL. You gotta transform all the data that goes in it, and that,that’s a tool to help you transform your organization throughout. So it can’t just be, I’m going to, to transform my function. And I don’t care about the rest. It has to be in tandem with everybody else. And it has to be something that’s driven by, by the, the CEO on the board of the organization. It can’t just be one person doing it, one executive doing it at a time because, uh, that, that, that’s when you’re, when you fail, because you might have all these great functionality built in your, in your, your solutions, but you still are relying with, uh, in, in other functions. And the other functions are still doing processes in, in a, in a more analog way then you’re gonna have a problem.

Madhurima Gupta:
Of course, I agree Alex. We’re almost at the end of this session now. So I wanted to understand um, you know, what are your final thoughts on how Mid-Market CFOs can get their automation recipe right. Larry, would you like to go first?

Lawrence Chester:
The key obviously is a cost-effective solution. Um, being in a position where every company is being careful about where they’re spending the money, the question is, is the solution that you’re putting in providing you with a cost-effective solution to a problem that you have, or a problem that you anticipate you might have. Um, being in a position where you are concerned about collections. And especially if you’re concerned about how an economic environment is going to impact on your clientele and their ability to pay, I think being in a position where you can find a software product or find any tool that you can use, that’s going to help you manage and monitor, uh, something as important as collections because collections feed cash flow. And if you don’t have cash flow, you can’t operate your business. So I think a tool like that would certainly be important as a means of helping businesses manage cash flow.

Madhurima Gupta:
I completely agree with Larry. Uh, Alex, from a data and technical perspective, what are the crucial elements of automating finance function the right way?

Alex Jimenez:
One, making sure that this alignment within the organization for a transformation that is not just for your function, but for the full organization. Uh, so, uh, you know, I can, I can think of many, many examples where a, uh, an executive said we are going to make a big change, and then, uh, it, it never happened because they didn’t have this support of the rest of the organization. So you have to have that. Uh, secondly, you need to understand what your objective is, how you’re doing digital transformation. Cause all the kids, all the cool kids are doing it, right? Uh, that, that’s not what you, why you should be doing it. You should be doing it, uh, because, uh, you have some big problems. Uh, the speed of change in the industry is accelerating. And you need to keep up and you are not able to keep, keep up, uh, you know, those sort of problems are the problems that should be driving your, uh, digital, uh, transformation. And, thirdly, as I said before, then once you’ve understood what the outcomes are and, and you have alignment, then you need to find the best way to do it. And like I said, for small organizations, mid-market organizations, generally, we’re talking about finding vendors that share your philosophy, share your goals, and are gonna be there to help you get there.

Madhurima Gupta:
Alex and Larry, thank you so much for being a part of our first-ever Mid-Market CFO Circle Live. It is definitely going to help your peers understand how they can leverage automation to streamline processes at their Finance function. And for our listeners out there, you can tune in to our complete episodes with our guest speakers on the link in the comments section below. We’ll be back next month with another roundup of industry stalwarts and thought leaders. In the meantime, you can subscribe to the Mid-market CFO Circle Community to never miss an episode! Stay tuned! We’ll be back with more.

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